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Walker Proposes Tax Hike, Even Though He’d Never Admit It

Posted by Chris Liebenthal on February 19, 2010

From Milwaukee County First:

Today, Milwaukee County Executive Scott Walker address a business group.  In his address to the group, he called for some reforms to be done to the way Milwaukee County government is structured.

According to Milwaukee Journal Sentinel reporter Steve Schultze, one of the main parts of this reform plan was to eliminate the current pension plan that county employees enjoy and replacing it with a 401(k) plan.

It appears on the surface to be a very fiscally responsible and logical solution to some of the financial problems the county is currently facing.  However, when one looks at it in further detail, it quickly becomes apparent that this is merely another political stunt to bolster Walker’s gubernatorial campaign.

Walker’s statements to bolster his reform plan is full of misdirections and is omits a lot of facts that would make his proposal much less appealing.  In the cold, harsh light of reality, the benefits that Walker indicates the pension reform would have is questionable, and might actually end up raising taxes for Milwaukee County citizens.

For example, look at this snippet from Schultze’s article:

The county’s pension costs this year were budgeted at $68 million and – absent any changes – are projected to grow to $100 million by 2014. Generous benefit improvements approved in 2000 and 2001, including the “backdrop” lump-sum payments, have been blamed for a share of the county’s ongoing budget imbalance.

The county’s pension cost in 2000 – the year before the new benefit took effect – was less than $1 million.

First of all, Walker is using the scare technique of throwing large numbers of potential costs out there.  The snippet does include the key phrase “absent any changes,” which indicates that if the county did nothing, this may be the scenario tax payers would be facing.  However, there is more and more evidence that the stimulus dollars are working and that the economy is making a recovery, albeit a slow one.

Secondly, he is emphasizing that the pension scandal and it’s overly generous benefits are the leading cause of the county’s economic woes.  This is far from accurate.  The report that was recently issues by the Public Policy Forum clearly indicates that the biggest economic woe the county is facing stems from the unchecked rising costs of health care.   To make matters worse, health care costs in southeastern Wisconsin is still much higher than anywhere else in the Midwestern region of the country.  Unless the federal government ever proves to be able to pass a meaningful health care reform bill, I see no way that this situation improves until the health care bubble bursts.

Another problem with the above snippet is how much of the pension woes are still due to the Ament scandal.  After the PPF report was issued, I was fortunate enough to have a conversation with Rob Henken, President of PPF.  In my conversation with Mr. Henken, I asked him directly how much of the current pension problems are due to the lingering effects of the pension scandal and how much was due to the fact that Walker repeatedly chose to not pay the full amount due to the fund.

Mr. Henken stated that it was almost impossible to quantify a percentage of blame to any one cause.  He pointed out that the pension scandal, the County’s failure to fully meet its obligation to the fund, and the global recession that sent everyone reeling all had parts to play in it.  It was my impression that the lingering effects of the pension scandal was the least of the problems facing the pension fund, as that most of the damage the scandal caused had already been done.

Walker’s continued failure to fully meet the County’s obligation only served to exasperate any problems, and with each year of failing to meet the obligations due, the problem only becomes exponentially worse.

Another bit of misdirection comes from the last line of the snippet.  It is true that the pension costs were much less in the years before the pension scandal.  However, it should be noted that a great deal of that has to do with the fact that the economy was much better then, and the pension fund was much more self-sufficient in meeting the costs with the money it was making for itself.

In other words, much of the current pension woes stem from Walker’s own actions as well as the effect of the economic strategies that he endorses.

Raising further questions about the benefits of Walker’s proposal, the 401(k) plans being analyzed would do nothing to address the legacy costs that the county is currently facing.  The plans would only affect future workers or any future time accrued by current workers.  However, employees hired after 1994 already do not have many of the benefits that is causing the problems.  The free lifetime health care  and the possibility of early retirement (the rule of 75, where a worker’s age and years of service are added together, and when they equal 75, the employee is eligible to retire and immediately collect a pension) were eliminated, as were the generous sick time pay outs.

As the article accurately points out, any changes to the pension system would have to be negotiated with the unions before it could be enacted.  Given the current situation, in which the unions are suing the County for bad faith bargaining and prohibited practices, and are facing massive concessions and lay offs, there is little likelihood that the unions would agree to any such changes without receiving some substantial compensations in return, such as big pay hikes, lower health care costs and job security language.  These are things which would have an immediate, negative impact on the tax payers, and seems unlikely to occur, especially in an election year.

To summarize, while the 401(k) plan has a certain appeal to  the tax payers, any benefits seen from it would be many years, or even decades, down the road, and would be greatly minimized, if not completely eliminated by the immediate costs of having the changes made.

According to he article, Walker proposed further tax hikes by again calling for the dissolution of the county altogether:

Walker also told the business group that absent fundamental reforms in county government, he favored parceling out county functions to the state, municipalities, private firms and independently elected parks and transit districts. Such a change would face steep hurdles, including state, county and local government approvals.

We have already  addressed some of the negative impacts that such plans already have had and would have on tax payers and for the people relying on services provided by the county, as well as more realistic and responsible solutions that could be implemented immediately.

What we need from Walker and the members of the County Board are some realistic, responsible and beneficial plans and suggestions instead of these acts of political grandstanding.  If Walker doesn’t start facing up to his responsibilities here and do so in a mature and realistic fashion, the county will only continue to crumble down around us.

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